The PNC Financial Services Group, Inc. Q3 FY2025 earnings call

• Excellent quarter with net income of $1.8 billion or $4.35 per share. • Grew customers, loans, and deposits with positive trends in legacy and expansion markets. • Strong NII growth trajectory, coupled with strong fee growth and well-controlled expenses, delivering record revenue and PPNR with positive operating leverage. • Credit quality remains strong with a net charge-off ratio of 22 basis points. • Retail banking: Consumer DDAs grew 2%, PNC Wealth Management had record investment assets. • C&IB: Record non-interest income, strong fee income pipelines. • Asset management: Client growth, expansion markets growing faster. • Announcement of acquiring FirstBank to propel PNC to number one market share in retail deposits and branches in Denver, tripling branch footprint in Colorado and adding presence in Arizona. • Continued investment in future growth with over 25 new branches opened by year end and on track to complete 200-plus branch builds by 2029.

Retail banking: Consumer DDAs grew 2% year over year, including 6% growth in the Southwest. PNC Wealth Management saw record investment assets. C&IB: Record non-interest income driven by broad-based fee income growth, with strong pipelines. Asset management: Client growth with expansion markets growing faster. Absolute terms: Loans averaged $326 billion, up $3B; investment securities averaged $144B, up $3B; deposits averaged $432B, up $9B. Revenue contribution: Details from various business lines as discussed in the call.

• Expect NIM to continue to grow and exceed 3% during 2026. • Full-year 2025 NII growth expected at approximately 6.5%. • 2026 NII growth expected to be better than 2025 excluding FirstBank. • Fourth-quarter net charge-offs expected to be in the range of $200 to $225 million. • Anticipate further deposit growth going into 2026, with mix of deposits expected to be fairly stable, possibly a little increase in non-interest-bearing deposits in the fourth quarter.

• Potential downside risks to the U.S. economy. • NDFI risk, with questions around frequency, severity, and loss history needing to be assessed. • Impact of regulatory changes, including the complexity and time-consuming nature of MRA processes, and uncertainty around capital binding constraints from rating agencies versus bank regulators.

Q: Rob, please expand on thoughts on margin for performance and outlook, especially regarding third-quarter commercial deposit growth and its effect on margin.

A: Rob Reilly stated NIM trajectory to hit 3%+ in 2026, outsized commercial interest-bearing deposit growth affected Q3 margin by 4-5 basis points due to mix change but NII accretive.

Q: Betsy Graseck asked about scale and C&I loan growth.

A: Bill Demchak said focus on organic growth, selective on M&A; Rob Reilly said commercial real estate balances expected to inflect positive in 2026, C&I loan growth outside real estate with strong pipelines.

Q: John Pancari asked about loan growth outlook and commercial loan demand.

A: Bill Demchak and Rob Reilly mentioned little strengthening in commercial loan demand, but M&A financing syndications and strong pipelines, utilization held steady.

Q: Ebrahim Poonawala asked about capital levels and GDP growth.

A: Rob Reilly said CET1 at 10.6%, operating between 10%-10.5%, GDP growth expected below 2% in 2025, unemployment to peak above 4.5% in mid-2026, Fed cuts expected.

Q: Chris McGratty asked about $9B commercial interest-bearing deposit surge.

A: Rob Reilly said combination of existing and new corporate clients, some deposits coming from sweep accounts moving on balance sheet.

Q: Erika Najarian asked about NDFI risk and regulatory changes.

A: Bill Demchak discussed simplification of regulatory process, MRA proposal impact, and NDFI risk with securitizations and capital commitment lines being low risk.

Q: Gerard Cassidy asked about regulatory changes and Moody's impact.

A: Bill Demchak said regulatory simplification would reduce MRA process time, Moody's had been binding but Basel III endgame and risk-weighted assets could impact.

Q: Ken Usdin asked about deposit cost and loan growth from commercial deposits.

A: Rob Reilly said rate paid on deposits to decline in Q4, commercial deposits can move beta fast, commercial deposit growth can lead to loan growth eventually.

Q: Mike Mayo asked about regulatory cost savings.

A: Bill Demchak said MRA process is time-consuming, involving many FTEs, and simplification would reduce this time.

Q: Matt O'Connor asked about organic growth and branch builds.

A: Bill Demchak said continuing branch builds, focusing on market saturation and organic growth in retail and C&I, not chasing M&A frenzy.